How The Beauty Industry Is Adapting To Change

“Brands are created at the speed of light. The beauty industry is becoming increasingly complex.

I recently attended the WWD Beauty Summit, probably the most important conference in the beauty industry since the most senior executives and interesting startups are there. The focus of the event was how much the industry is changing and almost all the discussion and presentations were about the changes affecting the industry.

The Signs of Change

Almost none of the industry leaders and upcoming independents ignored the indications of the change in the market.

Camillo Pane, the CEO of Coty, talked about speed. “Brands are created at the speed of light,” he said. “The beauty industry is becoming increasingly complex. Our instinct is to dislike complexity. But we either embrace it, or we’re not going to be around.”

Marc Rey, the President & CEO of Shiseido Americas, pointed out that traditional makeup was down 1.3% in 2016. But independent brands were up 42.7%. His implication was that the growth of independent brands was a reflection of a change in consumer tastes that everyone in the business has to respond to. The question is how.

Courtesy WWD

Kat Von D with Jenny Fine of Beauty Inc.

Kat Von D of the eponymous beauty company talked about how the barriers to entry have been lowered, creating a competitive threat to the established players. “It’s like music, everyone can do it now so in order to succeed you actually have to be f**king good.” She also talked about how customers have changed. Referring to the growth of the cruelty-free market she said, “millennials really do care.”

Mike George, the president and CEO of QVC, recognized the threats coming from sources that are much bigger than the beauty industry itself. He said there is a “collapse of institutional and brand authority.” He believes there are four reasons for the changes:

Erosion of trust in society

Race to the bottom (he’s referring to everyone trying to compete by selling at the lowest price)

Craving for authenticity

Shifting sources of influence.

He was very down on e-commerce. He said, “E-commerce creates a race to the bottom where price is the primary attribute and retailers devalue the role of brands. In beauty we’ve resisted that but it’s hampered so many categories.” I disagree with him on that one. While there is certainly lots of price competition for comparable products in e-commerce, whether it’s online or in traditional stores, my observation is that consumers want unique products and experiences and they will pay for them when they’re what the consumer wants. It makes me wonder whether QVC is feeling squeezed by e-commerce and the possibility that video on demand over the web will threaten their franchise.

He also talked about changing boundaries in the beauty business, referring to several phenomena:

The desire of consumers to have beauty products along with health and wellness products all together in one

Creating spa experiences at home.

All those phenomena involve an overlap in categories that used to be discrete.

He lamented the way technology is impinging on the way consumers want to live. “With all technology, we see consumers craving to bring humanity back to an increasingly impersonal world and increasingly impersonal shopping experience. We need to find ways to simplify the overwhelming complexity of the world we live in.”

Photo credit: Patrick MacLeod, WWD

WWD Beauty Summit

Jo Malone, the founder of the beauty brand of the same name who has now founded another brand called Jo Loves said, “I speak to teenagers and I ask them, “What do entrepreneurs mean to you?” She said the teens tell her three things:

“They set goals and walk towards them and fulfill them with warrior-like tactics"

"They’re people who change the language of the world and cause people to want to drop everything and follow them."

"They question and challenge everyone and everything but they deliver world-changing products and concepts and they add a lot to our lives.”

Malone summarizes these three answers into three words: passion, resilience and creativity. She also believes that we have to “change the way we create fragrance.” She thinks about fragrance all the time. During a presentation by Vicky Tsai of the brand Tatcha regarding modern day geishas’ beauty habits, Malone asked her, “what do Geishas smell like?” (Tsai told her, “They smell like babies.”)

Malone believes that millennials (which she used to believe was “something you planted in your garden”) aren’t just looking at their phones when you see them zombie-like in public places. “They create a community and their own language and their own world and communicate and consume in a different way.” Referring to consumers’ ability to do your marketing for you by communicating with each other on social media, she said, “They take it all up and spread the word for you. You think they’re not taking it in but they are. They don’t want to be just your consumer, or be entertained by you, they want to create with you, they want to touch the heartbeat and be part of the creative process… they want to be part of it.”

Fabrizio Freda, the President & CEO of Estee Lauder, noted that the last time he spoke the conference was in 2010 when there was no Instagram and now there are 700 million Instagram users. “We are shifting channels and preferences that are profoundly changing the industry. We aren’t simply moving from point A to point B, change is flowing like the current of the ocean.” He noted that many of these changes are enormous opportunities. In the U.S., “women are spending more [on beauty products], 13% more on foundation, 18% more on concealer, 35% of women use more than five makeup products every day and 80% use three skin care products every day..and six mascaras are sold per minute in the U.S... Younger generations are defining the culture with images of self-expression. They take more pictures in a day on average than their parents took in a year. Sixty-five percent of teens rely on social media to discover and select beauty products. By lowering the barrier to entry, we are encouraging an entrepreneurial fire.” He added that the average home has 1.2 detergent brands and 12 beauty brands. “Volatility and the pace of change are not diminishing. What we’re living through is not a moment in time, it’s the new reality.” Freda believes that the changes require stability. He said, “The art of leading through change is understanding what has not changed and how to leverage our historical strengths.”

Amy Regan of Skinfix, a young, new company with a suite of products that, like the name says, repair skin, talked about product itself as a sign of change. She said, “Seventy-three percent of millennials say they want natural skin care products. We think this category will get more awareness as CVS gets out of synthetic [skin care ingredients]… When you deal with a skin condition, there’s a heart connection that’s special and powerful.”

Courtesy Skin Fix

Courtesy Skin Fix

Regan believes that good skin will become more important in culture. “The incidence of eczema has tripled since the 1970’s. Seventy-percent of questions that pharmacists are asked relate to skin care. Skin care is about beauty meeting wellness. That’s the future of this industry. Consumers want things they feel good about putting on themselves and their children...When a customer has a need for their parent or child does, it affects your quality of life when it’s itchy and painful. When a consumer finds something that works for them, we get five-star reviews and we’re top-rated on QVC.”

Alan Ennis, President & CEO of Glansaol is a different kind of business model entirely. Glansaol is what the private equity world calls a “rollup.” Their business model uses investors’ money to buy up a range of smaller, independent companies so they have a “platform” of brands serving a spectrum of customers. The goal is to grow all the businesses and either sell to a bigger company in the industry or take it public. Today, Glansaol owns Laura Geller, Julep and Clark’s Botanicals.

Glansaol is all about product. Ennis, who was previously CEO of Revlon at age 39, says, “The path to a successful company used to be predictable. If a brand was in a department store, it had demonstrators. The big brands were leading the charge and they defined what consumers would be using. Celebrities defined what would happen and that was intentional because consumers wanted and aspired to be a celebrity. We used traditional media... But today it’s an evolving recipe. The pace of change is so fast that what’s true today probably won’t be true tomorrow. The brick-and-mortar places have become Sephora and Ulta and not department stores. The bigger brands are in slight decline and the independent brands are growing. Authenticity has taken over from celebrities because consumers don’t believe celebrities. They want something from a friend, colleague or a family member and not from a billboard. And social media has taken over from traditional media. My sense as to where we’ll be tomorrow is that we’re not in an evolution, it’s a revolution and how do we leapfrog ahead of our competitors so I can intercept the consumer where she makes her purchase.”

Then he talked about his own evolution saying, “When I left Revlon I asked myself what will I do to make a difference? I could have joined another large beauty company and I had a choice to be a divisional GM or CEO or to do something different. I chose the path less traveled. I didn’t want to write another chapter in someone else’s book I wanted to write a new book.” Ennis’ organization is unique in having a combination of entrepreneurial businesses under one roof without a legacy brand. It will be interesting to see if he can make it work.

One of the clearest signs of change in the industry, especially on the technology side, was the presentation by Parham Aarabi, Founder & CEO of Modiface. Modiface is an app that lets you see yourself in different lighting conditions, with different makeup and different hair colors. If you’re not familiar with it, here’s a quick YouTube on it below. Just keep in mind when you watch it – you’re conditioned to think that the change in background lighting is happening in the room but it isn’t, everything that changes in the video other than the movement of the model’s head is changing only in the app. Right now, 75 of the top 100 beauty brands are using Modiface.

Karin Tracy, Head of Industry, Beauty/Fashion/Luxury/Retail at Facebook, was there to convince people to market on Facebook’s properties and she made a very compelling case. She didn’t say this but her most compelling case was herself. She was previously the publisher of InStyle magazine and she left there to go to Facebook. When a person in a position like she had at InStyle moves to a social media company it tells you something important is happening. But she was more specific than that. About change in the industry, she pointed out that Facebook has 1.9 billion users, Whatsapp has 1.2 billion, Instagram has 700 million and Facebook messenger has 1.2 billion. All those companies are owned by Facebook and 20% of the time spent on the internet is with one of those brands. On those combined platforms there are 60 million businesses and every day there are 526 million posts that relate to the beauty industry.

“Imagine,” she said, “that the phone has become one joined real world where offline and online are merging together…we have technology linking Facebook to how we’re driving sales offline…we see people’s preferences whether they’re online or offline shoppers. We have the ability to serve personal and relevant messages that are appropriate for the channel they want. The consumer is the channel… You tell your story here and take this idea of aisle or storefront..to the palm of your beauty consumer’s hand.”

All of the companies who presented, and all the people I spoke to at the conference, recognized the enormous changes that are occurring in the industry. They all recognized the changes are being driven both by consumers’ tastes and habits changing as well as by technology. But no two people expressed it the same way. Everyone had a different observation about what the changes are. That implies very different responses which is exactly what they presented.

Why Women Like Beauty Products

You may think the question of women liking beauty products is silly, they like beauty products because it makes them look better. Well yes, but on a deeper level, an emotional level, the people in the beauty industry had a number of opinions.

Camillo Pane, the CEO of Coty said, “beauty is being beautiful the way you are.” That may sound circular but it isn’t. What he’s talking about is having women accept the way they look in a satisfied way rather than only seeing their physical shortcomings as so many women are taught to do. He’s also addressing the way sellers of products have historically approached women to motivate them as customers, getting them to focus on the things they don’t like about the way they look. It’s a whole change of mindset. “I believe in the power of self-expression for makeup,” he said. “Thirty percent of consumers see the beauty industry helping their self-confidence.” What he’s really saying is 70% of women don’t, and that needs to change.

Marc Rey of Shiseido explained it as, “Millennial women are confident, caring, connected and open to change.” That’s very kind of him to say but I question whether he’s right about that. He also said, “the level of consumer intimacy is insane [in the beauty business]” and he’s dead right about that. That intimacy, that connection to women’s self-perception is a key defining characteristic of why women like beauty products.

Kat Von D identified with her customer as people just like her. “I’m just a makeup fan. Makeup makes us feel a certain way. These are the products of my heart.” She started her beauty line because she said to herself, “how amazing would it be if you could create stuff just because. I create stuff because I say ‘how cool would that be.’ It’s not based on vanity, it’s based on self-expression. I like myself best without makeup but I love wearing makeup. There’s no formula to it, I think I just am.” She is a paradox. She has an authentic appeal, way beyond anything an advertisement can convey. That makes her less commercial which makes her commerce so successful. I spent an hour with her talking and you can feel how much she loves what she does and you walk away believing that if she didn’t love it she wouldn’t do it.

Tarang Amin, the CEO of e.l.f. Beauty, talked about consumers who love their products not because it brings them closer to feeling beautiful. “I love the passion and engagement of our consumers…[but] the unattainable aspect of beauty can be intimidating. Our approach is the opposite. We want to be as inclusive as possible and we want to make our company like our consumers.”

In the second part of this series, I discuss what these companies and some others are doing to deal with all the changes in the industry.